No more investment banks, says SEC

The SEC has announced the failure of its investment banking supervision and an end to its consolidated supervised entities regime

WASHINGTON, DC – The Securities and Exchange Commission (SEC) has announced the end of its consolidated supervised entities (CSE) programme of voluntary supervision – effectively spelling the end of investment banks on Wall Street.

In parallel press releases, the US regulator has accepted the failure of voluntary regulation of investment bank holding companies, concluding an investigation by its inspector-general in the wake of the Bear Stearns collapse in March 2008.

SEC chairman Christopher Cox says: “The past six months have made it abundantly clear that voluntary regulation does not work. When Congress passed the Gramm-Leach-Bliley Act, it created a significant regulatory gap by failing to give the SEC or any agency the authority to regulate large investment bank holding companies, like Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns.

“The inspector-general of the SEC today released a report on the CSE programme's supervision of Bear Stearns, and that report validates and echoes the concerns I have expressed to Congress. The report's major findings are ultimately derivative of the lack of specific legal authority for the SEC or any other agency to act as the regulator of these large investment bank holding companies.”

The SEC announcement represents something of a fait accompli. Bear Stearns, the first to fall of the ‘big five’ investment banks, was sold to JP Morgan Chase on March 16. Lehman Brothers filed for bankruptcy protection on September 15, the same day Merrill Lynch was sold to Bank of America. Both surviving dedicated investment banks – Morgan Stanley and Goldman Sachs –applied for status as ordinary (regulated) banks on September 21.

The statement by SEC chairman Cox can be downloaded from the following link.

http://www.sec.gov/news/press/2008/2008-230.htm

And the report into the demise of Bear Stearns can be downloaded from the link below.

http://www.sec.gov/about/oig/audit/2008/446-b.pdf